The bank has increased the interest rate on MME's existing loan from 6.5% to 8% - Edexcel - GCSE Business - Question 4 - 2018 - Paper 1
Question 4
The bank has increased the interest rate on MME's existing loan from 6.5% to 8%.
Identify two effects of this change on MME.
Select two answers.
A. Decreased net c... show full transcript
Worked Solution & Example Answer:The bank has increased the interest rate on MME's existing loan from 6.5% to 8% - Edexcel - GCSE Business - Question 4 - 2018 - Paper 1
Step 1
A. Decreased net cash flow
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Answer
An increase in the interest rate will lead to higher interest payments, which reduces the available cash flow for MME. This translates into lower net cash flow as a portion of the income must be allocated to paying the interest on the loan.
Step 2
D. Increased cash outflows
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Answer
The increase in the interest rate directly results in increased cash outflows. MME will have to pay more interest on its loan than before, thereby increasing its monthly or yearly cash outflow scenario.
